Volvo dismisses chief executive

ChristinaZander

STOCKHOLM-- Volvo AB dismissed its chief executive, Olof Persson, on Wednesday and said it would hire the boss of Scania to oversee efforts to boost profitability and restructure the world's second-largest truck maker.

During his four-year term, Mr. Persson was criticized for failing to halt an erosion in profit margins despite a 10 billion Swedish kronor ($1.15 billion) cost-cutting program from 2012-15 that has so far included nearly 4,000 job cuts.

He will be replaced from October by Martin Lundstedt, who since 2012 has served as chief executive of Scania, the Swedish truck maker acquired by German group Volkswagen last year. In the meantime, Volvo Chief Financial Officer Jan Gurander, who worked closely with Mr. Lundstedt during his own tenure as CFO at Scania in the early 2000s, will take temporary charge, Volvo said.

"The board has come to the conclusion that we're better served by someone with longer experience in the truck industry," Volvo Chairman Carl-Henric Svanberg told reporters.

Mr. Svanberg downplayed the board's focus on cost cuts and margins in an interview with The Wall Street Journal and said Volvo will have to concentrate on getting all parts of its global organization to pull in the same direction.

"You can't reach world leadership through cost cuts alone," Mr. Svanberg said. "It takes leadership skills to optimize the energy within an organization. You have to have a clear vision and people within the organization need to feel 'this is what we try to accomplish'," he added.

In a statement announcing the shift in leadership, Mr. Svanberg highlighted Mr. Lundstedt's 25-year-experience in the commercial vehicle industry as well as that "he is well known for his winning leadership style."

He rejected analyst and media speculation of a rift between the board and the outgoing chief executive and said that he still expects the company to deliver on its cost-cutting plan by the end of 2015 despite being 6.5 billion kronor away from that target.

"Martin Lundstedt has 25 years of experience from development, production and sales within the commercial vehicle industry," Mr. Svanberg said in a statement. "He is also known for his winning leadership style."

Swedish business newspaper Dagens Industri claimed last month that Mr. Svanberg was looking to replace Mr. Persson after growing frustrated with the company's performance following three years of an overhaul to improve margins.

After Volvo acquired a number of truck brands globally in the early 2000s, Mr. Persson had his work cut out in trying to streamline the company, which makes trucks under its Volvo, Mack, Renault, and UD brand, as well as in a joint venture with Dongfeng in China. Volvo also produces busses, marine engines and construction equipment.

In 2012, Mr. Persson told investors that he planned to improve Volvo's operating margin by three percentage points from 8.7% in 2011. But, faced with weak demand for its overall construction equipment business and for trucks in Latin America, the margin instead fell consistently to 3% in 2014. Volvo said Wednesday that the margin had risen to 9.1% in the first quarter of 2015.

Shareholders, including Swedish activist fund Cevian, have openly criticized the pace of restructuring under Mr. Persson's leadership. Shares have gained 17% in the past two years, but sharply underperformed both the broader Nordic market and truck-making rivals. On Wednesday, shares rose 13%.

"Martin Lundstedt will be key in taking Volvo to the next step, where focus will be on the whole business, costs as well as income," Christer Gardell, founder of Cevian Capital which owns 12.9% of votes in Volvo, said.

Speaking about Mr. Persson's dismissal, a representative of one of Volvo's institutional owners said the move came as a surprise seeing as the company has made progress with its effort to improve margins.

"Sometimes your timing as CEO is just bad," the representative, who declined to be named, said. "He has faced challenges in the market that are not within his control, but I guess at some point you have to try something new."

Mr. Lundstedt is partly credited with maintaining Scania's robust margins, which stood at 9.2% in 2014.

Scania has previous experience in cutting costs and reshuffling its operations and is widely known for its robust margins, which stood at 9.2% in 2014.

Volvo released its first quarter results on Wednesday, two days ahead of schedule.

The company said that its net profit rose to 4.25 billion kronor, boosted by currency movements and divested units. Sales rose to 74.8 billion kronor, up from 65.6 billion kronor, which was above analyst's expectations.

Truck deliveries in the quarter rose 3% as strong North American markets were offset by weakening in South America. The European truck market remained largely flat, Volvo said.

Write to Christina Zander at christina.zander@wsj.com and Anna Molin at anna.molin@wsj.com

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